1. Introduction
The Foreign Investment and Foreign Loan Management By-Laws issued by Nepal Rastra Bank (NRB) establish regulations and requirements for foreign loans in Nepal. This guide details these rules, including loan eligibility, restrictions, and the application process.
For additional details, download the full document at the top of the page.
2. Key Legislation Governing Foreign Loans
Relevant laws for foreign loan regulation in Nepal include:
- Foreign Investment and Technology Transfer Act (FITTA), 2019
- Foreign Exchange (Regulation) Act (FERA), 2019
- NRB Foreign Investment and Foreign Loan By-Laws, 2022
These laws govern foreign loan approval, use, and conditions, ensuring compliance with Nepal’s financial and economic policies.
3. Foreign Loan Restrictions
Foreign loans cannot be secured for certain sectors, including:
- Primary agriculture (e.g., poultry, beekeeping, vegetable farming)
- Cottage and small industries
- Real estate, retail business, and local services
- Arms manufacturing and nuclear industries
4. Eligible Borrowers and Lenders
Eligible borrowers include Nepalese firms, companies with foreign investment, infrastructure projects, and licensed financial institutions. Lenders may include foreign banks, non-resident Nepalis, and foreign institutions.
5. Borrowing Limits
Loan ceilings vary by borrower type:
- Nepali Companies: Up to USD 1 million or INR 100 million.
- Foreign-Invested Companies: Up to twice the total paid-up capital or five times if prior loans have been repaid under specified conditions.
6. Procedural Steps for Foreign Loan Approval
The following steps outline the process:
A. Application Submission:
File an application with NRB, including necessary documents.
B. NRB Approval:
Obtain prior approval from NRB.
C. Loan Remittance:
Secure loan transfer to an approved Nepali bank.
D. Loan Recording:
Record the loan with NRB within six months.
7. Required Documentation
Documents required for foreign loan applications include:
- Loan Agreement:
An official copy between borrower and lender. - Lender Documents:
Incorporation certificate (for organizations) or passport (for individuals). - Borrower Documents:
Incorporation certificate, tax clearance, and proof of Credit Information Bureau status.
8. Other Regulatory Provisions
- Currency Exchange:
Approval from NRB is required to exchange foreign currency. - Audit Requirement:
Companies with foreign loans must conduct audits within a year of receiving funds. - Loan Utilization:
Loans must be used strictly for their intended purpose, following NRB’s regulatory requirements.
9. Conclusion
Nepal’s foreign loan regulations ensure secure and compliant access to international funds, supporting development while protecting economic stability. The NRB by-laws offer clear guidelines for those looking to engage in foreign loan activities, with strict compliance necessary to avoid legal and financial risks.
For a detailed breakdown of the process and regulations, download the full document from the link provided above.
